By Jonathan Allen
(Reuters) - Michael Avenatti, the combative lawyer known for his battles with U.S. President Donald Trump, was indicted on charges of defrauding clients, including allegations that he withheld a multimillion-dollar settlement he won for a paraplegic man, prosecutors said on Thursday.
The indictment came about three weeks after Avenatti, who gained national fame for representing adult film star Stormy Daniels in her litigation against Trump, was arrested in New York on separate criminal complaints filed by federal prosecutors in New York and California.
Federal prosecutors in California announced the indictment after a grand jury found late on Wednesday that there was probable cause to pursue charges against Avenatti. The 48-year-old lawyer, a Los Angeles resident, said he planned to fight the charges and plead not guilty.
"I look forward to the entire truth being known as opposed to a one-sided version meant to sideline me," Avenatti, who is free on a $300,000 bond, wrote on Twitter on Thursday.
The federal complaint in California charges Avenatti with 10 counts of wire fraud, accusing him of misusing more than $12 million he received on behalf of clients following settlements and other negotiations.
"Money generated from one set of crimes was used to further other crimes, typically in the form of payments designed to string along victims so as to prevent Mr. Avenatti's financial house of cards from collapsing," Nicola Hanna, the U.S. attorney for California's Central District, said at a news conference in Los Angeles.
Avenatti became a prominent critic of Trump and a frequent guest on cable television news while representing Daniels, whose real name is Stephanie Clifford. She sued the president over a nondisclosure agreement that in the weeks before the 2016 U.S. presidential election kept her from discussing her claims that she and Trump had an extramarital affair 10 years earlier.
Prosecutors say Avenatti misled clients and misused their funds to pay personal and legal expenses, finance a coffee shop business he also ran, and pay for his share of a Honda private jet, according to the indictment. Federal authorities seized the jet on Wednesday, prosecutors said.
In one case, prosecutors said that Avenatti concealed a $4 million settlement won by a client in 2015 from Los Angeles County after he became paraplegic in an unspecified incident, instead giving the man periodic advances of $1,900 and paying the rent at his assisted living facility.
The client, referred to only as "Client 1" in the indictment, was identified as Geoffrey Johnson by his lawyer, Joshua Robbins.
On Thursday, Avenatti said on Twitter that the accusation that he had mishandled clients' money was "bogus nonsense" and posted an undated testimonial signed by Johnson that praised him as an "exceptional, honest and ethical attorney."
Johnson no longer stood by that statement, his lawyer said.
"It was signed before he was aware of the fraud," Robbins said in an interview, adding that Avenatti lied to Johnson in order to get him to sign the testimonial in March, shortly before Avenatti's arrest.
Lawyers for Avenatti did not immediately return calls for comment on the statement.
According to the indictment, Johnson's efforts to buy a house failed because Avenatti withheld the settlement money, and Avenatti lied to the U.S. Social Security Administration about the settlement to conceal the embezzlement, leading the agency to cut off Johnson's benefits.
The indictment also accuses Avenatti of various tax crimes. He is accused of failing to file personal tax returns since 2010 and to pay $3.2 million in payroll taxes on his coffee business, even though he withheld some portion of this money from employee paychecks.
The indictment said he defrauded a Mississippi bank of $4.1 million in loans by submitting false tax returns for 2011 to 2013 that inflated his income.
The most serious bank fraud charges carry a maximum sentence of 30 years per count, prosecutors said. Federal sentencing guidelines typically call for defendants to serve less than the maximum time.
The New York prosecutors have separately accused Avenatti of trying to blackmail athletic wear maker Nike Inc for more than $20 million.
Daniels, who replaced Avenatti as her lawyer last month, has said she was "saddened but not shocked" by his arrest.
(Reporting by Jonathan Allen; Additional reporting by Brendan Pierson, Gina Cherelus, Gabriella Borter and Daniel Wallis; editing by Frank McGurty and Leslie Adler)